Living Life the Wong Way --In Pursuit of Happiness and Food!

Roth IRA for Minors

My daughter started her first part-time job last summer.  I was proud to see her going off to her first interview.  She was nervous. What was she going to say? What was she going to wear? She wanted so much to do well in her interviews that she even rehearsed her answers to possible questions.

She was so delighted when she got her first job offer.  She was not so delighted when she got her first paycheck and saw how much the federal government took. I reassured her that most of it will be refunded back to her once she filed her income taxes since she didn’t earn more than the standard deduction.

Panda Bank
Panda Bank

I didn’t want her to go crazy with her spending. I wanted to share my nuggets of wisdom with her– save early and automate investing. Saving was the farthest thing from her mind. In her mind, her paycheck was already earmarked for clothes, shoes, records, and Spotify.

What I Learned

One thing I really regret is not investing earlier. I used to receive cash gifts for my birthdays and during the holidays. I would give them to my mom for safekeeping.   She always put it into a low yield savings account. She knew nothing about investing, only the traditional savings account from banks.  I also worked two summers during my high school years but regretfully, I did not save any of it.   I can’t even recall what I spent it on.

Retirement Account

Hoping to help my daughter avoid my mistakes, I suggested that since she has earned income, she qualifies to open a Roth IRA account. Low or no taxes on her earnings now and no taxes on earnings or withdrawal in the future.  The Roth IRA was a great investment vehicle for her. I’m sure her eyes glazed over when I started talking about index funds. 

“What?  I’m only a teenager,” she says.  “Why should I be thinking of my retirement now?”  I explained to her that time is on her side, so her money has time to grow with decades of compounding.  To my surprise, she agreed.

I researched custodial Roth IRA account for minors.  I initially wanted to open the account through Vanguard because I like their fund offerings and their business model of being client-owned. I was surprised when I called and their representatives asked us to send in hardcopy forms. Information on opening a custodial Roth IRA with Vanguard can be found here.

I wanted to open the account for her before she changed her mind, so I didn’t want to deal with any hardcopy forms. I ended up opening an account online through Fidelity. They also have an excellent no-load index fund offerings.

Earlier this year, she filed her first income tax return for year 2018 and was happy to receive most of her money back from the Federal government.  Instead of spending it on Lululemon, I was surprised when she wanted to put it towards her Roth IRA account. Yes! Maybe this is slowing sinking in!



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